the growing concern over business responsibility
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The Growing Concern Over
Business Responsibility
W I L L I A M
C
F R E D E R I C K
In the new era o f
business
power the old philosophy of
b
responsibility has been outdated. This rticle suggests a ne
more adequate st nd rd to follow in judging your resp ons
a s a businessma n to society.
The television quiz show scandal, aired last
autumn in Congressional hearings, has high-
lighted an issue that has been of increasing
concern to many people—the public respon-
sibilities of private businessmen. Concern
about business power is not new, but the
past decade has seen a growing conscious-
ness of the problems that business power can
create in a democratic society.
It is the contention of this paper that the
heightened interest in the problem of busi-
ness responsibility can be explained in terms
of two developments of the twentieth cen-
tury. One of these developments is intellec-
tual, the other is institutional in character—
and both of them are related to the collapse
of l issez faire as a philosophy and as an eco-
nomic order.
The Relevance of aissez atre
The disintegration of the world economy,
starting early in the present century, sig-
naled th e begirming of the end for the
laissez-
faire
philosophy and all its supporting in-
stitutions. Th e trend, accelerated by the First
World War and the subsequent monetary
panics of the 192O's, culminated in the early
initiated; Germany, where National S
ism was in the ascendant; Italy, which w
the throes of corporate Fascism; and
United States, where the New Deal
the symbol of institutional transformatio
a grand scale. These and other dom
economies, seeking to protect thems
from the ravages of a self-regulating m
mechanism, were transformed to an eco
in which centralized state planning
regulations were increasingly the rule r
than the exception.'
At the same time, it became more
more obvious that the world of busine
self was the scene of growing econ
power. Moreover, the growth of the l
scale corporation, with its tendenc
divorce legal ownership from actual co
of operations and with its technique of
ing upon itself for growth capital, freed
giants of business from the checks form
put upon them by stockholders and ca
investors. In addition, business had
bined two forces to dilute what coul
considered consum er sovereign ty: a re
and sophisticated advertising program
wha t am ounted to program ming contr
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Robinson and Chamberlin had written
The General Theory of
Interest and Money.
economic man who always pursued
the individualistic Robinson Crusoe
laissez faire.
laissez
had collapsed as thoroughly as had its
ts if only allowed to do so by a m eddle-
T H E B U S I N E S S R E S P O N S I B I L I T Y 55
a rational desire of man to solve his prob-
lems. Gone was the theory of a harmony of
interests which was to be the automatic out-
come of the self-seeking interests of a society
of rational men checked in their selfishness
by the invisible hand of competition. A type
of civilization and a way of thinking were
truly gone
vAth
the wind.
The collapse of the laissez faire philosophy
created a philosophical vacuum. It is this
vacuum that businessmen and others inter-
ested in the issue of business responsibility
have been trying to fill since the end of
World War II. Under the laissez faire philos-
ophy private interests were supposed to be
channeled into publicly useful pursuits, but
now such institutions as had been responsi-
ble had fallen into disuse. Under the
laissez-
faire
philosophy, there had been a social
theory by which private interests could be
harmonized with the interests of society at
large. This meant that there was no need to
be concemed deliberately with the social
responsibility of private businessmen; it
would be produced automatically. But now
there was no such theory. Quite plainly, the
older rubrics no longer furnished an ade-
quate intellectual system for explaining the
social consequences of business activities.
Hence, the collapse of
laissez faire
posed a
giant intellectual conundrum for social
theorists: How could a society with demo-
cratic traditions and democratic aspirations
rationahze the grovwng amounts of power
accruing to businessmen? And how could
that power be channelled into socially-usefxJ
functions without driving the populace into
some Orwellian nightmare of
1984
propor-
tions?
Several events conspired to cloak the true
nature of the crisis until after the Second
World War. It is true that a few questioning
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5 6 C A L I F O R N I A M A N A G E M E N T R E V I E W
Property
and James Bum ham in his analysis.
The Managerial Revolution. But preoccu-
pation with the Great Depression and with
the impending World War II served to post-
pone a consideration of the major problems
of business power tbat had developed out of
the broad-scale institutional changes in the
193O's.
However, with the resumption of peace-
time production, and after it became evident
that the American economy would not be
subjected immediately to anotber large-scale
depression, and particularly after studies
wbicb revealed the very great concentration
of economic power that had occurred during
the Second World War, all of the same wor-
risome questions were asked once again.
Since 1950, as a result, five major currents of
thought about business responsibility in
American society have developed. Each of
these currents attempts to grapple with the
problems of power in a complex society and
with the resultant issue of business responsi-
bility to tbe society at large.
Manag em ent as Trustee
Tbe first of these currents of thought, and
one tbat has gained increasing favor, is the
idea that corporate managers should volun-
tarily act as trustees of the public interest,
Tbey should police tbemselves and tbeir use
of the tremendous amounts of power they
possess. The keynote of this concept is the
deliberate and voluntary assumption of
pubhc responsibility by corporate managers,
even though at times such a trusteeship
might cause a managerial group to forego im-
mediate profits for the sake of the public
good. Management, according to tbis con-
cept, bas a multiplicity of obligations—to tbe
stockholders, to the employees, and to the
appeals to the conscience of individual m
agers to wield their power in a publ
responsible m anner. One student of th e p
lem has even called for the developmen
the conscience of tbe corpora tion to
tect the public against possible abuses
corporate power.
The Relevance of C hristian Ethics
Easily the most appealing and the m
emotional of these five viewpoints is
notion of relating Christian etbical princi
of conduct to tbe problems of business en
prise,' The basic idea seems to be that
businessman needs to think of himsel
something more than a simple mo
grubber. He needs to bave a nobility of
pose tbat overarcbes his corporate activ
and day-to-day duties. He needs skyho
to orient bim toward tbe nobler ideals
Christian ethical conduct so that he m
become a practicing Cbristian businessm
on the
job.
On e spokesman for tbis viewp
even argues the direct applicability of s
Christian doctrines as the idea of original
forgiveness, creation, and the general c
cept of God to the problems of busin
Christian ideals and doctrines are said, tb
fore, to fumisb the Christian businessm
with a framework of ethics by wbich he
approacb and grapple witb problems
finance, personnel, production, and gen
decision making,*
Balance of Power
One of tbe most intriguing ideas to re
pear in the postwar period is the notion
the answer to concentrated business po
is more power, Th e central them e of
argument is that business power is here
Adolf A. Berle, Jr..
The Twentieth Century Ca
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and that
the answer to this problem is
f the o ther major groups in the society
the side of one group against
the others while a sufficient amount of
the balance of power doctrine handles
e Viewers w ith Alarm
erhaps the strongest of the currents that
laissez faire
ists of the ideas of the group tha t views
alarm. ' Often these spokesmen see the
, Orwell, Riesman, W hyte, and Mills—
T H E B U S I N E S S R E S P O N S I B I L I T Y 5 7
doubts about concentrating so much power
in the hands of so few bureaucrats, wbether
of tbe industrial, the govemmental, or the
military type. The members of tbis group
have no clear-cut answer to the problem of
concentrated pwwer, counseling a resistance
of the spirit against the ravages of organiza-
tion and mass technology. Business responsi-
bility, they seem to say, will be achieved
only \\'hen there is a general recognition by
businessmen and otbers of the perils to the
individual personality that accompany great
aggregations of power.
Capitalist E thic R eformu lated
The fifth major current is actually com-
posed of many smaller rivulets of thought,
all of them related to an attempt to reformu-
late and restate the capitalist ethic in terms
that will be acceptable in the changed in-
stitutional situation that now confronts tbose
of us living under the capitalist tradition.
Perhaps the most notable attempt to refor-
mulate the capitalist ethic can be found in
The Cap italist Ma nifesto,
by Louis O. Kelso
and Mortimer J. Adler. This manifesto
argues that the capitalist revolution will not
be fuUy realized until some of the basic
capitalist principles—ownership, for ex-
ample—have been extended to embrace ever
larger numbers of citizens. As ownership is
more widely diffused, so will the citizen's
stake in the prevailing system increase. As
a
result, his interest and loyalt)' to the modified
capitalist system will increase. Thus, a higher
degree of responsibility on the part of capi-
talist-owners will be achieved by modifying
and extending one of the basic capitalist in-
stitutions. Clarence B. Randall, formerly
chairman of the Inland Steel Company, has
also tried to restate a more realistic ethic for
the capitalist system in his book, A
Creed
for
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ously naive.
Therefore, we find that the businessman,
d into a going system of values and
luence over tbe manner in which a
must
be concerned primarily with
The balance of power theory, on the other
laissez faire order.
laissez-faire
order, competition
T H E B U S I N E S S R E S P O N S I B I L I T Y 5 9
stitutes for the free competition of the Nine-
teenth Century. As Galbraitb himself has
been careful to point out, tbere are certain
institutional situations, particularly inflation,
in whicb the wbole balance of power system
breaks dovwi and does not in fact cbannel
private power into socially desirable uses.
Moreover, in
The Affluent Society
Galbraith
seems to be saying that the entire institu-
tional order, including tbe balance of power
system is outmoded and unserviceable with
respect to the utilization of society's resources
for socially intelligent ends.
Some of tbe most powerful statements on
business responsibility have been made by
tbe viewers witb alarm, who, like Gal-
braith, at least are cognizant of some of the
realities of the contemporary scene. They
are aware, for instance, that power is now
drawn up in different configurations and dif-
ferent proportions tban was tme of tbe older
order; and tbey sense that tbese changed
dimensions of power have shifted the nature
of the problems. But since tbe alarmists are
basically individualistic and humanistic in
tbeir predilections and since botb individual-
ism and bumanism are products of an age
before tbe fantastic aggregations of power
tbat we know today, tbere is very little the
alarmists can do except object to wbat is
going on and to what power accumulations
are presumably doing to individuals and to
human values generally. For them, there is
no way out save by some brand of passive
resistance to tbe organizational society and
its many bureaucratic institutions. It is char-
acteristic of this group of thinkers that they
have little or nothing to offer in the way of
an institutional system that will lead us out
of our present difficulties with respect to
promoting the social responsibilities of
private businessmen.
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6 0 C A L I F O R N I A M A N A G E M E N T R E V I E W
our increasing awareness of the requirements
of socially effective economic production and
distribution, and particularly the necessities
of economic growth and development on a
broad social scale. Some such value criterion
has been a part of American thinking since
the Great Depression of the 193O's, and it
was reinforced by the great emphasis that
the Second World War placed upon the
value of high production and the eflScient
allocation and distribution of economic re-
sources. In tbe current race with the Soviet
Union to dominate the world economic
scene, we see once again that economic pro-
duction and distribution constitute a major
criterion of value. Further, such a value as-
sumption underlies the Employment Act of
1946.
Also, such an assumption has caused
the nation's two major political parties to
pledge themselves to use all of the resources
of govemment at their command to offset
the Euctuations of the business cycle.
All of this suggests strongly that when we
invoke the phrase the social responsibilities
of the businessman, we mean that business-
men should oversee the operation of an eco-
nomic system that fulfills the expectations of
the public. And this means in tum that the
economy's means of production should be
employed in such a way that production and
distribution should enhance total socio-eco-
nomic welfare. Social responsibility in the
final analysis implies a public posture tow ard
society's economic and human resources and
a willingness to see that those resources are
utilized for broad social ends and not simply
for the narrowly circumscribed interests of
priva te persons and firms. The television quiz
show scandal is a case in point.
The second requirement of an adequate
theory of business responsibility is that it be
of management is being replaced with a c
cept of the manager as coordinator a
planner, as a team member whose m
play consists of making significant links
tween relevant pieces of information. T
means that managers need to reconstr
their self-images and to de-emphasize
role that status and authority play in
management function. And finally, the stu
of human relations is convincing manag
that careful treatment must be accorded e
ployees if they are to be fully effective
the work situation and if their jobs are
form a pa rt of the good Hfe. Any the
of business responsibility that ignores th
recent developments in management scie
would be seriously deficient.
Third, an adequate theory of business
sponsibility will recognize tbat the pres
business system is an outgrowth of histo
and past cultural traditions. It will recogn
that what we are today is, to a very lar
extent, a function of what we were yest
day. In more specific terms, this means t
there is not likely to be any escape from
very powerful motive of private gain a
profit which is often at variance with soc
interest. Rather than denying the importan
of this force or wishing it away in an ide
istic fashion or assuming that businessm
can or will ignore it as they make decisio
the new theory of business responsibility w
attempt to find institutional means for hed
ing about this motive and for directing
into socially useful channels. This, of cour
is the hope of Galbraitb in his theory
countervailing power. It is also a hope e
pressed by Berle in
The Twen tieth ent
apitalist Revolution
in which he speaks
the need to develop the conscience of t
corporation.
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T H E B U S I N E S S R E S P O N S I B I L I T Y 6 1
be m otivated to take action or make
Fifth, there should also be a recognition
matic mechanisms which by themselves
guarantee the results that the pubUc desires.
Conscience alone, whether of public trustee
or of Christian businessman, is not enough.
A balance of power is likewise insufficient.
Nor is courageous action by public servants
enough. The task requires a constant tinker-
ing with the institutional mechanisms of
society, employing more and more of the
fruits of scientific methodology and the sci-
entific attitu de . The job, though difficult,
should become easier as social scientists in-
crease their knowledge of human behavior
and human institutions. It is true that
we
cannot totally escape the impact of our cul-
tural heritage, but we are slowly accumu-
lating a storehouse of knowledge about our-
selves and about businessmen that should
enable us to resolve some of the problems
and issues of business resjwnsibility.
I congratulate poor young men upon being bom to that ancient
and honor ble degree which renders i t necess ry that they should
devote themselves to hard work
Andrew Carnegie
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